Smokes and booze for the children

Lawmakers want to make Nevada more dependent on “sins”

Keynesian economics has long appealed to politicians. The reason? It's a school of thought that teaches that governments can and should spend as much as they want on anything they want — including ditch-digging, the ultimate "shovel-ready" job — and that this will create jobs and stimulate the economy. Indeed, Keynesianism encourages policymakers to ignore any and all restraints and spend with reckless abandon on whatever government programs might fulfill their desires.

Now, policymakers in Nevada think they have found a taxation scheme analogous to the Keynesian principle of spending — one that encourages a lack of restraint by taxpayers as they pursue their carnal desires.

In order to make up for a projected decline in state operating revenues that may force spending cuts to the education system, lawmakers are considering increasing the "sin" taxes. "Sin" taxes in Nevada impose extraordinarily high tax rates on the sales of alcohol and tobacco products.

AB277 and AB255 would more than double the current excise tax rates on cigarettes and alcohol. The cigarette tax rate would rise from 80 cents per pack of 20 to $1.80 — an increase of 125 percent. The excise tax on liquor would rise by 115 percent, while the tax on other alcoholic products such as beer would rise by 331 percent.

Projected 2009-2011 Revenues*

Percent Increase

New 2009-2011 Revenues

Total Tax Increase

Cigarette Tax

$203,166,000

125%

$457,123,500

$253,957,500

Liquor Tax

$79,219,000

115%

$170,320,850

$91,101,850

Total

$282,385,000

-

$627,444,350

$345, 059,350

*Non-dynamic calculation, based on current Economic Forum numbers.

Applying the cigarette tax increase and the lowest rate of increase for liquor taxes to the Economic Forum's projections of tax revenue for the 2009-11 biennium gives a conservative estimate of the size of the total tax increase. As the table above shows, the total "sin" tax increase from these two bills could be as high as $345 million. And, as a consequence, about $627 million or 6 percent of all general-fund revenues during the biennium could end up reliant on the "sinful" activities of Nevadans.

State lawmakers have increased the reliance of state finances on "sinning" before. In 2003, state lawmakers responded to economic downturn by increasing the cigarette tax by 150 percent and the liquor tax by 75 percent. This would be an additional increase of 125 percent and 115 percent, respectively, just six years later.

Revenues from the proposed tax increases would nominally be designated for healthcare expenses. However, those revenues, passing through the general fund, would likely displace existing sources of healthcare funding from the general fund — allowing more tax dollars to be allocated to the education system to avoid cuts there. Hence, while these tax increases are being billed as following a "user pays" principle, they would effectively be tax increases for education.

This would not be the first time that state lawmakers have made education and "sinning" interdependent. In 1998, Nevada and 45 other states reached a settlement agreement with the largest tobacco companies that would force the companies to pay the states because tobacco products had allegedly driven up the cost of state-run healthcare programs. (After socializing the cost of healthcare, the states were essentially complaining that the costs were socialized. Individuals who did not have to bear the financial costs of their actions directly, it was argued, became less averse to smoking than they otherwise would have been, driving up state-run healthcare costs.)

Immediately, lawmakers in Nevada linked education funding to the supply side of "sinning" by using the tobacco settlement money to fund the Millennium Scholarship program. The new round of sin tax increases would just build on a long-established tradition in Nevada that forges an alliance between children, chain smokers and problem drinkers.

By making the funding of state government programs ever more dependent on the consumption of cigarettes and alcohol, state lawmakers would presumably like Nevadans to fulfill their civic duty by engaging in these activities. Surely, if state finances are reliant on "sinful" behavior, the worst thing that could happen from the government's perspective would be for everyone to go straight. Instead, Nevadans must be encouraged to do their part by smoking and drinking "for the children."

Who knows, perhaps "Come to Las Vegas and sin for the children" would even make for a better marketing campaign than "What happens here stays here."

After all, who doesn't want to help the children?

Geoffrey Lawrence is a fiscal policy analyst at the Nevada Policy Research Institute.

Issues

Geoffrey Lawrence is Nevada's Assistant Controller where he oversees the state's financial reporting and transparency efforts along with Nevada's elected controller, Ron Knecht. Geoffrey is a frequent commentator on public policy in print, radio and television news in Nevada and his work appears regularly in publications around the state and the nation. Geoffrey previously served as NPRI's Director of Research and Legislative Affairs until December 2014. He holds an M.A. in International Economics from American University in Washington, D.C. and is currently pursuing an M.S. in Accounting from Western Governors University.